All of the commercial real estate sectors performed strongly in second-quarter 2013 and will continue to do so, according to the latest “Q2 2013: US CMBS and CRE CDO Surveillance Review” from Moody’s Investors Service.

Michael Gerdes, managing director and head of Moody’s US CMBS & CRE CDO Surveillance, said that despite some muted economic indicators, commercial real estate property markets benefited from a limited amount of construction, as well as positive absorption. He added that with favorable fundamentals, transaction volumes remained healthy.

Gerdes said the following:

“As in the previous quarter, multifamily and hotel markets continue to perform strongly, although the pace of improvement is going to slow down. The recovery of the office and retail sectors has been more muted but their performance will also improve, in tandem with employment and economic growth.

“Our central economic scenario remains the same; our Macroeconomic Board Outlook forecast is for U.S. GDP growth of about 2 percent this year because of fiscal policy and public spending cuts. With housing starts and employment still growing and consumer sentiment improving, we expect U.S. growth of 2.0 percent-3.0 percent and a decline in the unemployment rate to 6.5 percent-7.5 percent in 2014.”

Moody’s base expected loss for conduit/fusion transactions was 9.06 percent, down from 9.07 percent in first-quarter 2013 because of lower delinquencies and overall better asset performance. Moody’s Commercial Mortgage Metrics (CMM) weighted average base expected loss was 7.6 percent, down from 8.3 percent. The share of delinquent loans declined to 9.9 percent from 10.2 percent in the first quarter, while the share of loans in special servicing declined to 11.5 percent from 11.8 percent. Base expected losses will decline slightly as delinquencies continue to decline and loss recoveries improve in tandem with improving market fundamentals.

Moody’s also reported the following individual sector highlights:

The retail sector will post modest gains, with positive rental growth by the end of 2013.

Office market fundamentals are improving gradually and the number of the improving markets is broadening. Depending on regional employment growth, vacancy and rental rates will improve moderately in 2013.

The hotel sector will continue to improve given minimal growth in supply, although the pace is slowing. Revenue per available room (RevPAR) rose 5.0 percent from the second quarter of 2012, with Luxury Hotels up 6.0 percent and Urban Hotels up 6.1 percent. The most improved market performers were San Francisco/San Mateo, Calif., and Oahu, Hawaii.

The multifamily sector will remain stable with moderate growth through the end of 2013. The multifamily sector also grew strongly in the second quarter, with the vacancy rate dropping 20 basis points to 4.6 percent. Six markets currently have vacancy rates lower than 3.0 percent, among them, Minneapolis, Minn.; Miami, Fla.; and Oakland, Calif. Effective rent growth rose by an annualized rate of 3.1 percent, which is solid, but slower than in 2012.

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